I just want to take a moment to salute Britain’s greatest living artist.

A few weeks ago I was in an American art museum looking at the modern masters. Pablo Picasso and Richard Serra share space with Sol LeWitt and Jackson Pollock in the tremendous collections of the National Gallery of Art in Washington DC. But not far from Barnett Newman’s Stations of the Cross paintings, an unexpected thing from home caught my eye.

It was like seeing a ghost. In fact, I was seeing Ghost – a sculpture by Rachel Whiteread that I first encountered, what, 20 years ago, in the London whose Dickensian chill it reproduces. Ghost is a cast of an entire room in an old-fashioned, perhaps Victorian, house. It is the solid trace of all the air that a room once contained. Empty space has become solid. Because it is solid, it is closed. Nothing can get in or out. On this side of the white surfaces of the massive block, engraved with negative images of fireplace, door, window and light switch, we wonder at the dark invisible silence within. Vanished lives, lost voices, forgotten loves are trapped in that fossilised room like prehistoric creatures in limestone.

Ghost is the closest living relative of Whiteread’s destroyed artistic masterpiece House. She made Ghost in 1990; three years later she took the same casting process to its logical conclusion by preserving the inner world of a house scheduled for demolition.

A photograph of the British countryside has been placed among the oil paintings in the National Gallery – causing people idling past to do double-takes. You can see them wondering: “Is that a painting? It’s so smooth, so shiny, so flat.” The picture shows bright fields and skies, seen through a dark thicket: the sensation of looking out from a hidden nook makes it an introspective, hesitant work. Perhaps that’s why it hangs so well alongside a great landscape painting by the quiet and contemplative master of the genre, John Constable.

Richard Billingham’s shot has invaded the holy sanctum of high art that is the National’s permanent collection as part of Seduced By Art, an exhibition of past and present photography. The gallery is a temple to oil on canvas. What happens when you allow photographs among the daubs?

Billingham strikes up a sombre, sensitive conversation with Constable’s The Cornfield: the result is a comparison of the English countryside in the early 1800s and early 2000s, proving, as the show claims, that photography can have a meaningful relationship with great painting. That’s just as well, because the two other pairings in the main galleries are disastrous. Seeing Richard Learoyd’s photograph Jasmijn in Mary Quant next to Ingres’s 19th-century beauty Madame Moitessier does nothing for either. As for a Craigie Horsfield photographic nude, shown between two sensual paintings by Degas, it’s an elephant among elegance.

Yet Degas, as it happens, was fascinated by photography. The great 19th-century painter of modern life took photographs and brooded on the relationship between the brush and the camera. Elsewhere in the National hangs his portrait of Princess Pauline de Metternich. Based on a photograph, the work gives the princess the slightly cadaverous look of some Victorian snaps, almost as if he’d copied a 19th-century deathbed photo. It’s a shame the show did not place some of Degas’s own photographs among his paintings, instead of Horsfield’s grimly ponderous black-and-white nude; this life-size work was surely inspired by After the Bath, Woman Drying Herself, the Degas work it partners (and thus, in turn, inspired by Degas’s own source, a drawing by Michelangelo). But arty quotation does not make art more powerful.

Is photography art? Clearly, some photography is, along with millions of camera-made images – from passport pictures to surveillance stills to my own snapshots – that are not. The trouble with Seduced By Art is that it has selected photographs that clearly aspire to be Art with a capital A. But why not put a passport photograph next to Giovanni Bellini’s Renaissance portrait of Doge Lorenzo Loredan? It is, after all, an exact depiction of someone’s facial features. Or what about a holiday snap next to something by the great 17th-century landscapist Claude Lorrain? That might say more, suggest more, matter more.

I’ve said it before and I will say it again, because it really matters: the Artist Rooms collection, founded in 2008 through the generous vision of the art dealer Anthony d’Offay, is a startling national asset. As it begins a fourth successive tour of galleries throughout Britain, this public collection of contemporary art is changing the very fabric of our visual culture.

There is only one contrast, one conflict that matters when it comes to art. Modern versus traditional? Don’t be daft. Painting versus installation? Yawn. The only struggle that matters is the timeless war between good and bad art. In Britain, because of prejudices rooted deep in our history, museums have long possessed plenty of examples of great Renaissance or Romantic art, but few masterpieces of modernity. This distorts our entire experience of art: it makes arguments about artistic value oddly thin and ideological, because people are unfamiliar with first-rate examples of the art of the past 50 years.

Artist Rooms is changing all that. This collection could easily fill a museum of its own, and would be a major national attraction if it did. But it is being used in a far more radical and liberating way. With the support of the Art Fund, its outstanding examples of works by the best artists of recent times are shown in rotation in public galleries around Britain. Museums get a boost, and audiences everywhere are introduced to top-quality modern art. In the latest round of exhibitions, there is even a game to make it still more accessible to a young public.

Art magazines operate in a sphere of journalism that knows none of the rules of logic, grammar, coherence or entertainment value that generally prevail in the world of the published. To get published in an art magazine you need to follow criteria that are almost the total opposite of what you need to write for general publications. Anything that might interest or enlighten the general reader – or any reader – is to be ruthlessly avoided.

This is why there is almost no crossover between such magazines and the mainstream press. But, amazingly, there has in recent years been a feeding frenzy in the bizarre media subculture of art magazines. The vogue for art has apparently convinced many publishing titans that there’s money to be had in art fairs. What with all the idiots who’ve been buying art (until recently that is), there must surely be a market for an idiot’s art magazine?

ArtReview, for example, having gone through innumerable changes of editor and style, now features big celebrity interviews that treat artists as if they were not so much gods as something much greater than gods – say, reality television stars. There’s also one, I believe, called Art World (ugh) while Modern Painters has intensified what was always a fairly celebrity-struck gloss.

Other magazines have adapted to the frenzied popularity of art without entirely losing their souls. Frieze has obviously had a massive boost since its publishers founded an art fair. This is one that I actually wrote for. I’ve recently been reading it again – and have been amused by its funny pedantry. A piece I was looking at last night cited the old children’s television programme Why Don’t You? and some intern had actually checked the dates the series ran. Who knew it was on the air until 1995? And who says you learn nothing from art magazines?

I’m relieved that I haven’t needed to fork out more than I have on magazines during a period of intense contemporary art research. Google goes a long way. One journal I have enjoyed looking at, however, is Afterall. This magazine is currently celebrating its 10th anniversary and I was pleasantly surprised that it kept me diverted during a train journey yesterday.

Afterall is the very opposite of the slick, ugly new breed of mags that try to feed off art’s perceived glamour. It publishes essays rather than interviews, and the essays do try to explore real ideas. I found an article on the return of the “spiritual” in art pertinent and provocative. It pointed out something I hadn’t quite noticed, that the vogue for the gothic in art so visible in a show like Mythologies at Haunch of Venison is related to the anti-Darwinian religious resurgence in society. Afterall seems aware that art exists within a larger world. That’s much more worthwhile than offering pathetic secondary access to a glamorous “art world” that doesn’t exist.

Here’s what I think has been the trouble with the Turner prize in recent years. Well, probably for the last 10 years. It’s not that it doesn’t reward “figurative artists” (does such a category even exist? Does anyone say, “I’m a figurative artist”?), or that it pushes video, photography, etc. The Turner made its name by championing the avant garde and must always do so. There is a perfect possibility that in years to come – perhaps very soon, given how the world is turning upside-down – “avant garde” will mean, say, expressive painting, as it did in the 1980s. You only have to consider the fact that Nicholas Serota once championed Julian Schnabel to realise there is no permanent definition of what constitutes newness in art. Today’s obsessions will be tomorrow’s old hat. Out of it all some good emerges – anyway, that’s what you have to hope.

No, what has, I think, made the Turner less classic is the fact that judges feel they have to differentiate a Turner aesthetic from the crowd-pleasing art that succeeds elsewhere. This dates back to 1999 when Tracey Emin was shortlisted. Her bed turned the Turner into a show, a sensation – which it had flirted with before, but not to this extent.

Since then – not through any conspiracy, but because this is how taste tends to work – the general approach of Turner juries seems to have been to reward something called “seriousness”, and, as a baseline rule, to avoid rewarding the so-called “young British artist” generation any more than it has been rewarded. The Turner has become about (a) discovering post-YBA artists with alternative voices to the Quinns and Emins and (b) selecting from within that huge category artists with – to use artspeak – “rigour” in their “practice”.

Bloody boring artists, in other words.

Last year, four boring artists fought it out in a boring exhibition. With certain exceptions, notably the great Jeremy Deller, too many Turners have been awarded to artists with rigorous practices and no imagination. Like that German painter and that guy with the shed boat. Oh look it’s a shed. No, it’s a boat. Amazing.

Visual excitement, visceral imagery, wit, personality and – yes – even a bit of technical ingenuity are not bad things in art. They’re the strengths that make it last. I believe several British artists have exhibited these strengths this year, but will the 2009 Turner jury have the courage to reward them, or will it get mired in the art world’s version of stuffy respectability? Only time will tell.

No sphere of high culture is implicated in the fall of the affluent society in the same way art is. Yesterday I commented on the resistance to melancholy, the flight from reality, that enabled art in our time to promote the fantasy of an unlimited market. Some have called the system that has now fallen “offshore capitalism”; perhaps another description is “post-modern capitalism”. In post-modern capitalism, secondary markets created a counter-reality that was unfettered by production. The economy was run like a theme park. It’s obvious how deeply involved in that daydream was the art of the last 20 years, which so gleefully rejected anything that might tie it to the slow, patient, tedious stuff of real creativity.

Drama, the novel, even cinema have all kept a safer distance from the booming monster of modern capitalism than artists did. What I want to ask now is – why? What happened? How did art become the mirror of fraud? It is not a story that starts with Damien Hirst’s diamond skull but one that goes back to the very origins of the consumer society.

After the second world war artists were steeped in history and introspection. Art has never been more serious in its view of life than it was in the era of Mark Rothko and Francis Bacon. But even as modern painting reached such heights and depths, western society was going through an epochal transformation. The power of the capitalist economies in the postwar era was unprecedented in world history. An entirely new lifestyle, that of “consumerism”, was born.

Consumerism instantly inspired artists. Pop art in America and Britain took the surfaces of objects, the instant appearances of the new bright world, as its subject matter. Everywhere, emotional depth in art was censored. Abstract Expressionism had to die. Art could teach people to look at the world in a new way: to embrace the cool. Pop art taught everyone to enjoy money and the mass media and 1980s post-modernism taught the same lesson again.

These emotional styles have long since been so popularised that even intelligent people accept that reality television is a form of culture and celebrities fit receptacles for our ephemeral floods of feeling. All the shallowness of modern mass culture began in avant-garde art 40 years ago. We’re Warhol’s ugly brood. Art has even fed the unsustainable appetites that are destroying the planet by constantly telling everyone cities are better than the countryside, culture more real than nature. It has become the enemy of truth, the murderer of decency.

The economic collapse is hitting the art world in some surreal ways. Gagosian Gallery in Los Angeles has just had to postpone a planned exhibition, by the maverick performance and conceptual artist Chris Burden, that involves the use of 100kg of gold bricks. Gagosian purchased these – wow! How much does 100kg of gold bricks even cost? – from a company called Stanford Coins and Bullion. This company is a subsidiary of Stanford Financial Group, that is, it’s part of the empire of Texas financier Allen Stanford who is now at the centre of a massive fraud investigation. Now, announces Gagosian, “the gallery’s gold has been frozen while the SEC investigates Stanford.”

So the stories are spinning as the marriage of art and money unravels.

Not so long ago the British painter Leon Kossoff held an exhibition at the National Gallery. His drawings after the Old Masters got almost no press attention that I can recall – yet Kossoff is a veteran artist with great achievements to his name. He has painted the life of London’s East End with a sombre honesty and compassion. Artists such as Kossoff, or Frank Auerbach, or Paula Rego are a lot less fashionable today than artists who do things with gold bricks.

Why is that? No, it is not because they are “figurative”. Marc Quinn is figurative; Antony Gormley is figurative. What makes artists such as Kossoff seem out of date? It is their melancholia. The contemporary art world can cope with melancholy as style, but taste revolts at the reality of sad, severe, serious life in these painters’ work. The problem is, you can’t parlay it. You can’t fantasise on it. The authenticity of these artists annoys us because it tells us there are realities that rule us, The world, since the 1980s, has stopped believing in such a thing as reality. Money was unleashed from facts of any kind. Art became its delusive mirror.

Art is fun, it’s a laugh, it’s entertainment, it’s spectacular, it’s cool … art now aspires to be all the things fashion is. And so it cannot accomodate the awkwardness of a Kossoff: cannot be a bone in anyone’s throat. Its success is totally bound up with the same fiction that anything is possible that has inspired banks to lead us all into a looking-glass world.

I’ve tried to resist this fact for a few months, but I’m done with illusion. Art as we know it is finished. It is about to be exposed as nothing more than the decor of an age of mercantile madness. On what bedrock might a new art arise?

It’s time for my traditional roundup of the books I wish I’d read this year. It was a brilliant literary year, packed with exciting new publications that I really wish I’d got around to reading. Right now, in my in-tray are new books about Joseph Beuys and Ian Hamilton Finlay – although, to be precise, the Beuys book, “Coyote” (Thames and Hudson), is a lovely-looking reprint of a photo-diary originally published in the 1970s by Caroline Tisdall of the great shaman’s encounter with a live coyote in a New York art gallery. The nice thing about picture books is that you can enjoy them without actually having to read them, and I like the look of this one. But will I give it close study? Only time will tell.

Art books this year have also included – so I gather – a magisterial essay by the great American critic Michael Fried on why photography matters as art, as never before. It is actually called Why Photography Matters As Art As Never Before. This title is a gift to the would-be reader of all the latest books. Even without seeing a copy in a bookshop, let alone reading it, I know that Fried is saying something provocative – at least, it is provocative if you are at all familiar with Michael Fried’s previous books.

In the 1960s, Fried published a controversial attack on the then-new style of minimalism. The art of Donald Judd and Carl Andre, he argued, is “theatrical” – meaning that it adopts a highly self-conscious relationship with the beholder. It performs, preciously. Great art, by implication, is anti-theatrical and ignores the beholder. This critique is still immediately recognisable as a description of much of the art of today. But Fried went on to pursue his theory across centuries of art history.

In a series of brilliant books that began with “Absorption and Theatricality”, on art and the beholder in eighteenth century France, he has pursued his theme through the art of Gustave Courbet, Édouard Manet and Thomas Eakins. He has been caricatured as a conservative. But now here he is, discerning anti-theatrical virtue in the camera-based art of Jeff Wall and Douglas Gordon. Sounds fascinating.

The book I most regret not having read this year is Richard Fortey’s Dry Store Room No 1: The Secret Life of the Natural History Museum. I love Fortey’s books and I love the Natural History Museum. Not only is it London’s loveliest and most rambling Victorian knowledge emporium, and the most marvellous place on earth to introduce a child to science, but it is a vital research centre whose staff include both Fortey and the authority on human evolution Chris Stringer. The strength of Fortey as a popular science writer (his previous books include Life, The Earth, and Trilobite!) is that he is a real writer. His prose is playful, seductive, digressive and literate.

Fortey communicates science’s subtle pleasures. In his field of paleontology, he is constantly pushing the reader away from dinosaurs towards tiny arthropods and obscure anatomies. To let this rambling poet of a science writer loose on the Natural History Museum seems a recipe for a truly magical book.

Does the artist Susan Hiller believe in ghosts, or doesn’t she? Is her fascination with the paranormal a study of mass psychology, an aesthetic pose, or a personal spiritual vocation? Is she a modernist or a medium? It’s not just ghosts with which Hiller’s art flirts. Flying saucers, telekinesis, levitation and the idea of a personal aura all fascinate this pioneer of video and conceptual art.

In her current exhibition at Timothy Taylor Gallery, London (until December 20 2008), you can see how her interest in the un-mundane has developed through the course of her career. A mood of hippy experiment, of collective mayhem and questioning, hangs like a Pink Floyd instrumental fug over her 1974 piece Dream Mapping. She still makes art in a speculative spirit, but her recent “homages” to Yves Klein and Marcel Duchamp (both made in 2007/8) raise the question of belief.

Levitations: Homage to Yves Klein is a sceptical riposte to a famous believer. Auras: Homage to Marcel Duchamp finds belief in the art of a renowned sceptic. The French 1960s painter, performer and visionary Yves Klein once had himself photographed levitating; the photo was faked and Hiller’s explanatory text reveals how. In her collection of photographs from all over the world, people levitate, often hilariously, through a variety of effects, Photoshop manipulations, tricks of angle. Perhaps one is a real shot of levitation – but you are encouraged to seriously doubt that. A very different attitude to the uncanny pervades Auras, a set of brightly coloured, at first sight abstract photographs of emanations and clouds of light in which faces, pale and ghostly, dwell. These are photographs taken with special cameras that claim to detect the aura, the supposed spiritual nimbus, a person carries with them. Hiller associates this belief with no less a dry philosopher than Marcel Duchamp.

Perhaps the best way to characterise Hiller is as a collector. The collector is both outside and inside the collection. When you amass curiosities, your relationship to them is richly ambiguous. Perhaps the mermaid in your private museum is there as an example of human credulity and fantasy. Or perhaps you believe in mermaids. Hiller’s collections of mentalities allow us to encounter ideas, images and intuitions outside the mainstream of western rationalism – or, rather, embodying its new, unofficial mainstream – that are at times genuinely unsettling. In her 1987 work Magic Lantern, you watch perception-altering interactions of colour while listening on headphones to ghostly voices purportedly recorded by leaving a tape recorder in an empty room. The voices are ridiculous and yet I found myself remembering them later, in the dark of the night, with a shudder.

In From Here to Eternity, isolated entities endlessly negotiate sealed labyrinths. Maybe it was just the shapes of the labyrinths that reminded me of the octagonal floor plan of the Rothko Chapel in Houston or maybe it was the sense of souls stranded in limbo. No way out – the image of eternity is terrifying in this eerie animated triptych. Hiller’s museum of lost souls has some very claustrophobic rooms.

I came across a great rant about the art market the other day. It’s by Damien Hirst and it appears in the catalogue of the exhibition In-A-Gadda-Da-Vida, held at Tate Britain in 2004.

Hirst’s relations with dealers, money and the Golden Calf in general have been big news this autumn, what with his sidestepping his dealers, Jay Jopling and Larry Gagosian, to auction his latest works directly at Sotheby’s. And the future of the big, beautiful art market is now of course as dubious as every other economic fact. So I can’t resist introducing Hirst as guest blogger today. His remarks made in 2004 surely reveal a lot about his real feelings about White Cube and Gagosian.

Here’s a highlight: ” … Art is about life and the art world is about money although the buyers and sellers, the movers and shakers, the money men will tell you anything to not have you realise their real motive is cash, because if you realise – that they would sell your granny to Nigerian sex slave traders for 50 pence (10 bob) and a packet of woodbines – then you’re not going to believe the other shit coming out of their mouths that’s trying to get you to buy the garish shit they’ve got hanging on the wall in their posh shops … Most of the time they are all selling shit to fools, and it’s getting worse.”

So there you have it – the last word on the art market from the man who deconstructed it and made millions into the bargain.